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An overview of the draft carbon tax legislation and carbon offset regulations: How will it all work?

Aug 24, 2017

An overview of the draft carbon tax legislation and carbon offset regulations: How will it all work?

By Anél Blignaut, January 2017.

Setting the context of carbon tax and carbon off-set regulations

In a press release by National Treasury on 10 November 2016 it was made clear that the ratification of the 2015 Paris Agreement emphasises the reality that we will have to prepare to operate in a carbon constrained economy over the medium to long term.

A business as usual scenario is no longer an option treasury stated that appropriate and proactive actions must be taken to help transition our economy onto a low carbon growth path as articulated in the National Development Plan. The carbon tax, together with the carbon offsets, is seen by Government as an important and cost effective instrument, as part of a package of measures, to put our economy onto a more sustainable growth path. The carbon tax policy forms an integral part of the climate change response policy package under the National Climate Change Response Policy (NCCRP) of 2011, and is recognised as an important instrument to ensure cost effective greenhouse gas (GHG) mitigation in the National Development Plan

This information piece attempts to summarise information out of a series of workshops that has been held by government to inform stakeholders of the draft regulations and to provide an opportunity to comment on the regulations. Please note that the regulations are still in draft form and that changes may take place and the information presented should be read in this context.

How will the carbon tax be administered and what legislation applies?

Ideally, carbon tax should be designed in such a way as to create incentives for companies to change their behaviour and consumption patterns to reduce their reliance on fossil fuels.

The main pieces of legislation and the role they play has been summarised below. The Carbon tax bill and associated regulation is still in draft form and needs to be accepted by Parliament. In addition certain legislative and regulatory frameworks need to be put in place to give effect to the proposed legislation and regulations.

Legislation/Regulations

Status

Responsible authority

National Environmental Management: Air Quality Act No.39 of 2004

Promulgated

Department of Environmental Affairs (DEA). The DEA will host the National Atmospheric Emissions Inventory System (NAEIS). The NAEIS is an online national reporting platform that will hold both air pollutants and greenhouse emissions inventories of the republic.

The carbon tax will be implemented by the South African Revenue Service (SARS).

Regulations for mandatory reporting of GHGs and the Technical Guidelines have been developed and published.

The DEA will maintain a mandatory GHG inventory database which feeds into the National Atmospheric Emissions Information System (NAEIS); T

The Department of Energy (DoE)’s reporting on energy use data through the Central Energy Database and Energy Efficiency Target Monitoring System will also be incorporated into the NAEIS maintained by DEA;

SARS will liaise with DEA and will be able to access the GHG inventory and the NAEIS.

The DoE currently hosts the Designated National Authority (DNA), which will be responsible for administering the carbon offset scheme.

What are carbon-offsets and how will it work?

Firstly, what is and offset? An offset means a measurable avoidance, reduction or sequestration of carbon dioxide (CO2) equivalent GHG emissions (Explanatory note for the Draft Regulations on the carbon offset, 2016). As part of implementing carbon tax regime it is planned that companies can reduce their carbon tax liabilities through carbon offsets. The purchase of offsets will enable entities to cost effectively lower their carbon tax liability.

Carbon offsets are guided by a variety of principles, which will typically need to be fulfilled for a project to be awarded a tradable credit under a specific standard (Carbon offsets Development System Consultation Workshop, 2016). A carbon tax liability can be reduced by using credits up to a maximum of 5-10 percent of their total greenhouse gas (GHG) emissions (Explanatory note for the Draft Regulations on the carbon offset, 2016). The reason for setting a limit is to ensure that organisations make a significant effort to mitigate their own emissions.

A specific set of criteria has been proposed for carbon offset project which include the following:

Projects that generate carbon offset credits must occur outside the scope of activities subject to the carbon tax.

Only South African based credits will be eligible for use within the carbon offset scheme

Carbon offset projects registered and / or implemented before the introduction of the carbon tax regime will be accepted subject to certain conditions and within a specific timeframe (Department of Energy Carbon Offset Administration System Workshop, National Treasury).

Acknowledgements:

The following sources have been used in the compilation of the information presented above. Please note that the regulations are still in draft form and subject to change. This should be taken into consideration when reading the material presented.